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State advances and private retreats? — Evidence of aggregate productivity decomposition in China

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  • Du, Jun
  • Liu, Xiaoxuan
  • Zhou, Ying

Abstract

This paper is motivated by the recent debate on the existence and scale of China's ‘Guo Jin Min Tui’ phenomenon, which is often translated as ‘the state sector advances and the private sector retreats’. We argue that the profound implication of an advancing state sector is not the size expansion of the state ownership in the economy per se, but the likely retardation of the development of the already financially constrained private sector and the issues around the sustainability of the already weakening Chinese economy growth. Drawing on recent methodological advances, we provide a critical analysis of the contributions of the state and non-state sectors in the aggregate Total Factor Productivity and its growth over the period of 1998–2007 to verify the existence of GJMT and its possible impacts on Chinese economic growth. Overall, we find strong and consistent evidence of a systematic and worsening resource misallocation within the state sector and/or between the state sectors and private sectors over time. This suggests that non-market forces allow resources to be driven away from their competitive market allocation and towards the inefficient state sector.

Suggested Citation

  • Du, Jun & Liu, Xiaoxuan & Zhou, Ying, 2014. "State advances and private retreats? — Evidence of aggregate productivity decomposition in China," China Economic Review, Elsevier, vol. 31(C), pages 459-474.
  • Handle: RePEc:eee:chieco:v:31:y:2014:i:c:p:459-474
    DOI: 10.1016/j.chieco.2014.03.002
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    2. Dai, Xiaoyong & Sun, Zao, 2021. "Does firm innovation improve aggregate industry productivity? Evidence from Chinese manufacturing firms," Structural Change and Economic Dynamics, Elsevier, vol. 56(C), pages 1-9.
    3. Walheer, Barnabé & He, Ming, 2020. "Technical efficiency and technology gap of the manufacturing industry in China: Does firm ownership matter?," World Development, Elsevier, vol. 127(C).
    4. Dai, Xiaoyong & Sun, Zao & Liu, Hang, 2018. "Disentangling the effects of endogenous export and innovation on the performance of Chinese manufacturing firms," China Economic Review, Elsevier, vol. 50(C), pages 42-58.
    5. Jun Du & Xiaoxuan Liu, . "Selection, Staging and Sequencing in the Recent Chinese Privatization," Journal of Law and Economics, University of Chicago Press, vol. 58(3).
    6. Lele Zou & Jinjun Xue & Alan Fox & Bo Meng, 2018. "The Emissions Reduction Effect And Economic Impact Of An Energy Tax Vs. A Carbon Tax In China: A Dynamic Cge Model Analysis," The Singapore Economic Review (SER), World Scientific Publishing Co. Pte. Ltd., vol. 63(02), pages 339-387, March.
    7. Dai, Xiaoyong & Cheng, Liwei, 2019. "Aggregate productivity losses from factor misallocation across Chinese manufacturing firms," Economic Systems, Elsevier, vol. 43(1), pages 30-41.
    8. Li, Larry & McMurray, Adela & Sy, Malick & Xue, Jinjun, 2018. "Corporate ownership, efficiency and performance under state capitalism: Evidence from China," Journal of Policy Modeling, Elsevier, vol. 40(4), pages 747-766.
    9. Andrea Fracasso, 2015. "Economic Rebalancing and Growth: the Japanese experience and China’s prospects," DEM Discussion Papers 2015/07, Department of Economics and Management.

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    More about this item

    Keywords

    Industrial development; Reallocation; Decomposition; Aggregate productivity; China;
    All these keywords.

    JEL classification:

    • O14 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Industrialization; Manufacturing and Service Industries; Choice of Technology
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • C10 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - General
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence
    • P3 - Economic Systems - - Socialist Institutions and Their Transitions

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